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  • Writer's pictureThe San Juan Daily Star

What’s the matter with Europe?



Photo by Christian Wiediger on Unsplash

By Paul Krugman


In my most recent column I had a bit of fun with Kristi Noem, the governor of South Dakota, who has ominously warned that President Joe Biden will turn us into Europe. I joked that this would mean adding five or six years to our life expectancy. When I shared Noem’s remarks on social media, some of my correspondents asked whether this meant that we’re about to get good train service and better food.


A note to younger Americans: We already have better food. It’s true that Bolognese remains infinitely better in Bologna than anything you can get here, even in New York, but you have no idea how bad American cuisine was in the 1970s.


But Noem’s remarks were part of a long tradition among U.S. conservatives: insisting that Europe is already experiencing the disasters they claim will happen as a result of liberal policies here. Right now, the issue in question is immigration. In the past, however, the imagined European dystopia was supposed to be a result of high taxes and generous social benefits, which allegedly destroyed the incentive to work and innovate.


So it seems worth asking what problems Europe really has — that is, problems that are different from our own.


In discussing Europe-U.S. comparisons, I find it helpful to distinguish between developments before the COVID pandemic and developments since, as we have followed quite different policies in response to that upheaval.


So, how did Europe and America compare economically in 2019? Overall, they were surprisingly similar.


I fairly often encounter people who believe that Europe suffers from mass unemployment and has lagged far behind the United States technologically. But this view is decades out of date. At this point adults in their prime working years are actually somewhat more likely to be employed in major European nations than in America. Europeans also know all about information technology, and productivity — gross domestic product per hour worked — is virtually the same in Europe as it is here.


It’s true that real GDP per capita is generally lower in Europe, but that’s mainly because Europeans take much more vacation time than Americans — which is a choice, not a problem. Oh, and it should count for something that there’s a growing gap between European and U.S. life expectancy, since the quality of life is generally higher if you aren’t dead.


Just to be clear, Europe isn’t utopia. There are many real problems, even in nations with social safety nets that American progressives can only dream of. Sweden has a problem with gang violence. Denmark is one of the happiest nations on the planet, but there are nonetheless a significant number of melancholy Danes, and the country has experienced a rise in right-wing populism.


Nonetheless, Europe is in astonishingly good shape, economically and socially, compared with almost any other part of the world.


All that being said, most people have the sense that Europe is in relative decline and that its economy has grown more slowly than America’s over the past few decades. And this sense is correct. But the explanation may surprise you: It’s essentially all about demography.


From 1999, the year the euro came into existence, until 2019, the eve of the pandemic, the U.S. economy grew a lot more than the euro area in real terms — 53% versus 31%. But almost all of that difference is explained by the fact that the U.S. working-age population (conventionally, if somewhat unfortunately, defined as ages 15-64) grew a lot over those two decades, while Europe’s hardly grew at all (and has been declining in recent years). Real GDP per working-age adult rose 31% in the United States and 29% — basically inside the margin of error — in the euro area.


Is Europe’s stagnant population a problem? It does raise fiscal concerns: Can a shrinking workforce support a growing number of retirees? (This problem would be alleviated if Europe were to accept more, um, immigrants.) But it’s hard to look at these numbers and see them as a picture of economic crisis.


But that’s a portrait as of 2019, before the pandemic. What about developments since then?


In Europe, as in the United States, disruptions created by COVID and then by Russia’s invasion of Ukraine led to inflation. In fact, if you use comparable price indexes, cumulative inflation since early 2020 has been almost the same on the two sides of the Atlantic.


This similarity, by the way, casts doubt on claims that Biden administration policies, as opposed to pandemic-related disruptions that affected the whole world, are to blame for U.S. inflation.


The United States has, however, had a much stronger economic recovery than Europe — more than can be accounted for by differences in population growth. And this probably does in part reflect Biden policies: America did much more to stimulate recovery with government spending.


Furthermore, while inflation has been plunging in Europe in much the same way it has in the United States, officials at the European Central Bank at least sound much more reluctant than their U.S. counterparts to reverse recent rate hikes, so Europe is running a much bigger risk of recession.


So what’s the matter with Europe? No, the Continent hasn’t been overrun by immigrants. No, strong welfare states haven’t stifled the incentives to work and innovate. But Europe does suffer from policymakers who are excessively conservative, not in the left-right political sense, but in the sense of being too worried about inflation and debt, and too hesitant about promoting economic recovery.

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